HEROES CAMPAIGN: “Beyond Basics”

Contributed by: Center for Financial Planning, Inc.®

The Center’s Hero Campaign aims to spotlight local nonprofits amid the COVID-19 outbreak. Our goal is to raise awareness and support the community. This is our 2nd post in the Q+A series featuring Beyond Basics.

What is your nonprofit?

Beyond Basics is a 501(c)(3) literacy nonprofit dedicated to one-on-one reading intervention and holistic literacy enrichment programs for students and families in Metro Detroit. Our proven methods have unlocked the miracle and power of reading and opened a whole new world and future to those who need it most. We developed this model by partnering with principals and schools in Detroit since 2002, to work with children who were farthest behind to get them reading at grade level. Our holistic literacy programming also engages mentors, art and writing to help students in vulnerable communities learn to read. This intervention has transformed thousands of lives.

Illiteracy is a silent epidemic, yet America's most solvable disability. It is a crisis because it has gone unaddressed for decades, leaving thousands of children attending school each day who can’t read. The good news is there is a solution. While low literacy levels can be found at all income levels and backgrounds, poor and minority students are more likely to be affected. Beyond Basics sets up our programming in the communities that need it most. 

Who do you serve? 

Students and adults in Metro Detroit —including Detroit, Pontiac, and Taylor. We serve students of all ages (from elementary through high school). We also have recently opened at Family Literacy Center in the Durfee Innovation Society to reach those in neighboring communities that need help with literacy.

How have the communities you serve been impacted by COVID-19? And how has it impacted your nonprofit?

The pandemic has closed schools (which is where we typically saw our students), as well as causing high levels of unemployment, illness, and deaths. The students have been subject to great change during these unprecedented times.

Our nonprofit has been impacted as well. We had to convert our tutoring system into an online platform quickly, so that we could reach our students. It was crucial for us to continue to deliver literacy intervention to the students that need it most.  

What can people and businesses do to support your organization and nonprofits generally during this unique environment?

You can support our organization, and other nonprofits, financially by funding our online tutoring program and families with financial hardship.  Donate here.

Read more blogs in this series:

1. Focus: HOPE

2. MOTCC

3. HAVEN

Second Quarter Investment Commentary 2020

Contributed by: Angela Palacios, CFP®, AIF®

As the economy slowly opened and our grocery store shelves were restocked, the second quarter became one of the best in decades.  Tailwinds such as government stimulus, positive trends in “flatting the curve”, economic reopening, good news on virus treatment, and hope of a vaccine gave investors the confidence they needed to flock back into stocks.  This comes in stark contrast to the first quarter with a dizzying correction for the S&P 500 down 34% in about one month.

Many are left wondering if this is too good to be true and there are several different and all very valid view points on this matter. 

How can equities be back to near-peak levels when we are still in a pandemic?

As indexes recovered much of what they lost in the first quarter, some investors are left scratching their heads wondering how this could be when businesses lost out on so much during the shutdown of the economy.  At first glance, this does seem to be strange.  There are several possible reasons this has occurred.

1. The hardest hit companies were small businesses not reflected in large indexes like the S&P 500.  When people couldn’t frequent their local small businesses for the goods they needed during the shutdown they turned to online shopping from big box places in droves.  So, what small businesses have lost, large businesses have gained (at least in the short term).

2. Government provided assistance in the form of forgivable debt to small businesses and issuing checks directly to individuals.  So, not only, were people stuck at home with nowhere to spend their income (other than fixed bills), but they were also given stimulus checks.  For many, this provided a much needed back stop to pay important bills like a mortgage or car payment.  However, the data also shows that much of this has been put away for a rainy day.  Check out the historical chart below of the M1 Money Stock (the amount of money held by individuals that is ready to spend. ie. currency and checking account deposits in the US).  We have never seen a spike of this magnitude.

As businesses have reopened, many goods and services are in high demand like automobiles and home improvement.  People are now spending the money they couldn’t spend while stuck at home and the market is pricing this into results that should be reflected in the next quarter’s earnings reports.

3. Lower interest rates mean home owners can refinance debt at lower interest rates, putting more money in their pockets and less in the bank’s pockets.  People can also buy new cars with 0% financing.  Lower interest rates also leave those seeking income on investments with very few places to turn other than equities to replace the loss in income.

What could cause the markets to head right back down?

I have this feeling that the economy is balancing on the edge of a knife right now.  The momentum is forward toward recovery but several risks could slow or undermine that momentum:

• A resurgence of the virus – COVID-19 alone isn’t the cause of a potential market pull back, but this does increase the probabilities of parts of the economy having to close for periods.  A good case in point is the recent closure of indoor bar service in parts of Michigan after several bar gatherings have been identified as sources of local spikes in cases.  I don’t think we will see widespread shut down of economies again but there will be pockets of this occurring.

• Expiration of supplemental unemployment benefits – If people are unable to go back to their jobs, or find new ones, the loss of the extra unemployment income at the end of July could be a significant hit to consumer confidence.  This means that the e-spending habits that are currently boosting the economy, could go away very quickly.  I view this as the largest risk to the recovery right now because unemployment is at 11.1% nationally with Michigan being one of the hardest-hit states for job loss.  As shown by the chart below, we have not experienced such widespread job loss in a recession in recent history.  The jobs data from the Bureau of Labor Statistics for June shows that we are adding a large number of jobs back so, for right now, we appear to be improving on this front.

• Governments failing to provide more stimulus if needed – How politics play out is always an unknown that cannot be predicted but if shutdowns become more widespread again, people will look to the government for more assistance.  If this isn’t provided we could see a swift correction.  I believe, if needed, we will see more stimulus in the future as the government has proven with it’s actions that it does stand ready to support the economy.

• How many small business will survive?  This is a question that only time will tell but the risk is high that many will not.  They represent a large employer in the economy so major closures will have a highly negative impact on employment numbers.

What are we doing in response?

The Investment Committee is discussing topics like “How to invest through periods of low to negative interest rates?” and “How do we best help clients achieve their financial goals when deficits and current valuations could be a long term anchor to portfolio returns?”  Our Jaclyn Jackson, CAP® recently wrote the blog How To Invest In Turbulent Markets where she articulates what we can control, representing a great summary of what we do behind the scenes for our clients. 

Not long ago the markets and the economy seemed to be in freefall, but we just had one of the best quarters ever for market returns.  It is important to remember that investors look at whether things are getting better or worse; this is a large driver of markets.  At the end of the first quarter, things were getting worse and investors had no idea where a bottom could be or how long we would be shut down.  Since then, much has improved, we have more knowledge on this virus and the economy continues to improve which explains why the markets are up (even though the magnitude may not make intuitive sense).  These vast swings in sentiment have created many opportunities for changes in portfolios.  If you ever have questions regarding the addressed topics and how it relates to your portfolio, please don’t hesitate to reach out to discuss.  We are here for you and thank you for your continued trust.

Angela Palacios, CFP®, AIF®

Partner & Director of Investments

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

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Opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance doesn't guarantee future results. Investing involves risk regardless of the strategy selected The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. stock market. You cannot invest directly in any index.

HEROES CAMPAIGN: “Focus: HOPE”

Contributed by: Center for Financial Planning, Inc.®

The Center’s Hero Campaign aims to spotlight local nonprofits amid the COVID-19 outbreak. Our goal is to raise awareness and support the community. This is our 1st post in the Q+A series featuring Focus: HOPE.

What is your nonprofit & who do you serve? 

Focus: HOPE is a nationally renowned civil and human rights organization and a trusted member of the community for five decades. Founded in 1968 by Father William Cunningham and Eleanor Josaitis, Focus: HOPE provides an intergenerational, holistic mix of services to disrupt the effects of racism, poverty, and other forms of social injustice in southeast Michigan.

Early Learning

Focus: HOPE Early Learning aims to build a cradle to career pipeline of opportunity by providing quality early childhood education for newborn to five-year-olds through evidence-based models. More than 244 students and their families are educated and supported by our Early Learning programs.

Youth Development

Youth Development includes education, recreation, social justice, and leadership development activities for more than 250 students - including a 21st Century Community Learning Center, Excel Photography, summer camp, and Generation of Promise.

Workforce Development

With an extraordinary record of success in working with underserved and underrepresented adults in Southeast Michigan — having trained over 500 students in 2019 — we offer high-quality work readiness, pre-apprenticeship, and apprenticeship programs in a range of in-demand career fields.

Food Justice

Our Food Program provides 41,000+ low-income seniors with monthly food packages to assist with independence and healthy living while addressing basic needs. Our program also provides important infrastructure for health screenings, income support, and tax preparation for seniors and the community at large.

Advocacy, Equity & Community Empowerment

Focus: HOPE pursues leadership as an antiracism organization by advocating for systems change, and by integrating racial equity and community empowerment offerings across all program areas. Focus: HOPE serves as a one-stop hub providing financial coaching, free tax prep, utility payment assistance, on-campus DHHS access, health screenings, a clothing closet, peer support circles, and more.

How have the communities you serve been impacted by COVID-19? And how has it impacted your nonprofit?

Focus: HOPE was founded to unite the community at a critical time. We remain committed to living out our mission to overcome racism, poverty, and injustice – no matter what. Programming has evolved due to the crisis, but we’re still serving more than 42,000 community members every month. 

• Our Food for Seniors program has shifted to a contactless pickup system – staff place food boxes directly into seniors’ cars. We’re also making more home deliveries, so seniors can stay safe at home.

Early learning students are receiving virtual home visits to make sure they and their families are getting the support they need (including food and diapers), and teachers are sharing educational content students can work on at home. 

• Workforce development training has moved online too. Some classes have been able to transition to fully online instruction, and all students have access to e-learning resources and virtual support. 

Additionally, Focus: HOPE is committed to using our assets and abilities to support our community’s current needs. Special initiatives include: 

• Manufacturing face shields and masks through our 3D-printing capabilities

• Distributing cash payments to support local families’ economic stability

• Equipping our IT graduates to assist companies in adjusting to remote work

• Assisting community members navigating the unemployment process

What can people and businesses do to support your organization and nonprofits generally during this unique environment?

Even COVID-19 can’t stop our mission of intelligent and practical action to overcome racism, poverty, and injustice - and we’d be honored if you’d join us with your support.

Give

Donate to support our work with individuals and families throughout Southeast Michigan during this crisis. Give here.

Volunteer

There is a great need for volunteers to pack boxes and deliver food to seniors. We provide masks and gloves and strictly follow social distancing guidelines. Learn more and sign up here.

Start Your Fundraiser from Home!

Create a fundraising page to support our COVID-19 response efforts.

Read more blogs in this series:

1. Beyond Basics

2. MOTCC

3. HAVEN

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Raymond James is not affiliated with and does not endorse the opinions or services of Focus: HOPE. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Michigan Auto Insurance Reform: What You Need To Know

Contributed by: Kali Hassinger, CFP®, CDFA®

As of July 2020, legislation has gone into effect that changed Michigan’s no-fault auto insurance law.  Residents now have the option to elect their preferred level of Personal Injury Protection (PIP).  Personal Injury Protection is the piece of your insurance that pays for expenses if you’re injured in an auto accident, such as medical costs and lost wages.  Michigan’s law was unique to other no-fault states because residents were required to maintain insurance that provides unlimited medical benefits and covers the lifetime of the injured person. This became cost prohibitive over time, and an average of 20% of Michigan drivers are uninsured.

The new legislation now provides 6 different choices when electing your PIP medical coverage.  Under the new limits, the amount shown below is what the insurance company will pay per person per accident.  A slight premium reduction can also be expected with each choice, because in conjunction with these options, each auto insurance company is required to reduce PIP medical premiums for the next eight years. This may sound promising, but the Personal Injury Protection portion of your insurance only accounts for a small percentage of your overall premium.

1. Unlimited Coverage – Although this is the same coverage as required in the past, drivers can expect an average PIP premium reduction of about 10%

2. Up to $500,000 in PIP coverage – Drivers can expect a 20% reduction in PIP premium costs

3. Up to $250,00 in PIP coverage - Drivers can expect a 35% reduction in PIP premium costs

4. Up to $250,000 in coverage with PIP medical exclusions – This option is available for those with non-Medicare health insurance that covers auto injuries

5. Up to $50,000 in PIP coverage – Drivers can expect a 45% reduction in the PIP portion of their overall premium, but this is only available to individuals covered by Medicaid. Family or household members are required to maintain other auto or health insurance that will cover auto accident injuries.

6. PIP Medical Opt-Out – This is only available to those enrolled in Medicare (Parts A and B). Family or household members are required to maintain other auto or health insurance that will cover auto accident injuries. Although this option may seem tempting for those covered by Medicare, remember that long term care costs are not covered, regardless of whether or not they are due to sustained injuries from an auto accident.

Liability is another piece to consider when making your election. Those who select anything but unlimited PIP coverage may need to consider additional liability coverage.  The default minimum bodily injury coverage is $250,000 per person and $500,000 per incident, but there is an option to elect lesser amounts. 

Although it can be easy to focus on the premium reduction when electing your PIP coverage, being sure that you’re appropriately covered is always most important.  If you fail to make a specific election, unlimited PIP protection will be selected as a default. This may not be a bad thing, as medical costs continue to rise and most do not understand exactly what their healthcare insurance would cover in the event of an auto accident.  In most cases, auto insurance is actually more comprehensive in terms of healthcare coverage when accidents occur.  Each person’s situation is unique, but in terms of liability and healthcare coverage, protecting yourself and your family is of utmost importance.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

A Checklist For Managing Finances After A Divorce

Contributed by: Jacki Roessler, CDFA®

As a divorce financial planner, my clients often ask what financial tasks should be addressed immediately and which ones can wait. Post-divorce life can feel overwhelming. To achieve long-term financial success, I recommend sorting your financial tasks into 3 categories: those that need immediate attention, those that can wait 3-6 months, and those that should be tabled until more time passes. Although each case is different, there are a few items that always seem to hover at the top of my “Do it now!” list.

Secure spousal support through life insurance

If you’re receiving child support or alimony payments, in most cases your divorce decree would state that your ex-spouse needs to maintain “adequate” term life insurance coverage to secure your interest. However, what most clients don’t understand is that the divorce decree is only binding on you and your ex-spouse. If he or she changes the beneficiary or stops paying the premiums, your child support and alimony could be at risk. Your ex-spouse might be in violation of the divorce decree, but that doesn’t matter much if they are no longer alive. There are steps to take to prevent that from happening. Ask your former spouse to make you the owner of the policy. Only the owner is notified when a premium payment is missed and only the owner can change the beneficiary. If your spouse doesn’t agree, contact the insurance carrier to see if they will copy you on quarterly or even monthly statements so you can take immediate legal action if needed.

Remove your ex-spouse as a beneficiary

Suppose that based on your agreement, your divorce decree says your ex-spouse won’t receive any share of your retirement accounts. Upon your death, if you forget to change your beneficiary designations, your ex-spouse will still receive your retirement account, regardless of what your divorce decree states. As noted in item 1 above, your divorce decree isn’t binding on third parties, such as insurance carriers and account custodians. It’s only binding on you and your ex-spouse. Rather than expose yourself or your heirs to estate litigation, confirm that you’ve changed your beneficiary designations on all retirement accounts.

Get your QDRO

The QDRO (Qualified Domestic Relations Order) is the only legal document that will transfer interest in a qualified (i.e. employer sponsored) retirement plan or pension between spouses pursuant to a divorce. The problem is that most couples wait several months (sometimes significantly longer) to get their QDRO drafted. Why does it matter? If your ex-spouse (the account owner) dies, remarries or retires prior to the plan administrator approving your QDRO, your awarded benefits could be severely diminished or even eliminated. Timing is critical.

Partner up with a qualified financial advisor

Last but certainly not least, I recommend that clients without investment or financial planning experience find an experienced and trustworthy advisor to work with going forward. There are multiple moving parts after the divorce is final. Clients need to open new accounts, transfer assets, obtain health insurance, make sure QDRO are in place, and design a new investment portfolio strategy. The transition process can seem daunting. Enlisting the aid of a financial advisor/advisory team that has experience working with post-divorce transitions can ease the pressure. That partnership will help you complete the “Do it now!” checklist.

Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.

Should I worry if my 401k savings are down?

Contributed by: Robert Ingram, CFP®

It can be scary when financial markets are volatile and selloffs happen. Understandably, many are concerned about how COVID-19 will impact the economy, our health, and our financial security. These fears and the volatile markets that follow can temp retirement savers to make drastic changes to their investment portfolios; some may even cease investing entirely. For example, if you watch your 401(k) continue to lose value, you may want to stop contributing. However, I’ll explain why you should stick with your current long-term savings and investment plan.

Why Its Beneficial to Keep Contributing

Contributing to a retirement plan like a 401(k) or 403(b) is still one of the best ways for most Americans to save and build wealth for retirement, particularly in times of economic uncertainty. 

• Tax Benefits 

  Contributions to most 401(k) plans are made pre-tax, meaning these amounts are excluded from your taxable income in the year they are made. This reduces your current income taxes. It also allows those savings to grow tax-deferred year-after-year until they are withdrawn.

  Employer plans that offer a Roth designated account (i.e. a Roth 401(k) or Roth 403(b)) can present a great opportunity for investing. Roth contributions are made after-tax, so those amounts do not reduce your taxable income like the 401(k) does. However, those savings grow tax-deferred. The withdrawals and earnings are tax-exempt, provided you are at least age 59 ½ and have held the account for at least 5 years. This tax-free growth can be a powerful tool, especially for individuals that may be in a higher income tax bracket in the future.

• Opportunity To Buy Low

  For investors that are still contributing to their plans, a downturn in markets actually presents an opportunity to invest new savings into funds at lower prices. This allows the same amount of contributions to buy more shares. As markets and economic conditions rebound, you will have accumulated more shares of investments that could grow in value.

• Matching Contributions

  Need another incentive to keep those contributions going? Don’t forget about opportunities to receive employer matching with retirement plans. If your employer offers a 401(k) match, you would receive additional savings on top of your own contributions. Let’s say your employer matches 50% on contributions you make up to 6% of your salary. By putting 6% of your income into your 401(k), your employer would contribute an extra 3%. That’s like earning a 50% return on your invested contributions immediately. Those extra contributions can then buy additional shares which can also compound over time. 

Should I Ever Consider Stopping Contributions?

Even in a booming economy and during the strongest bull market, it’s important to have a strong financial foundation in place before deciding to invest over the long-term. Having key elements of your day-day-finances as stable as possible is necessary as we navigate the incredible challenges created by COVID-19. A few examples include:

• Control Over Your Cash Flow

  Do you know exactly how much money you earn and spend? Understanding where your income exceeds your expenses gives you the fuel to power your savings. How secure is your employment? Are you in an industry directly or indirectly impacted by the economic shutdowns due to COVID-19? What would happen to your cash flow if you had a reduced income? If there are other expenses you could cut in order to maintain your contributions, you should still try to contribute. However, if you need every dollar possible to pay your bills, you would have no choice but to suspend your 401(k) contributions.

• Cash For Any Short-Term Needs

  Having cash reserves is a critical part of a sound financial plan. If an unexpected expense occurs or you had a loss of income, be sure to have cash savings to draw from rather than being forced to sell investments that may less valuable or to use credit cards with high-interest debt. If your savings is less than a month’s worth of normal expenses, you should consider focusing your efforts on reinforcing your cash reserve rather than on your retirement plan. Then, ideally, you should work towards building 3 to 6 months’ expenses for your emergency fund as you continue to save for retirement or other goals.

• Tackling Your Debt

  If you have high-interest rate debt that you are working to pay off and are unable to find additional savings in your budget to increase your payment amounts, it could make sense to redirect your retirement plan contributions to pay the debt down first. On the other hand, if your employer offers a company match, you should still consider contributing at least enough to get the full amount of matching dollars (remember that free money could see a return of 50% or more). You could then redirect any amounts you are contributing above that maximum match percentage.

Your situation and needs are unique to you. It’s important to work closely with a financial advisor when making decisions, especially in these incredibly difficult times.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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Keep in mind that investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results.

Can I Afford To Buy A Second Home In Retirement?

Contributed by: Robert Ingram, CFP®

It’s a dream for many Americans as they envision retirement, having a second home as a vacation getaway, a seasonal escape, or a primary residence someday.  Even with the relatively mild winter we’ve just experienced in Michigan, it’s easy to appreciate the idea of living away during the cold months or enjoying a summer home up North.  But before you can live the dream, do your due diligence and crunch the numbers.

Retirement income expenses include the daily cost of living and the things you want to enjoy.  Making a large purchase, such as buying a second home, will take a significant chunk of your savings.  If you’ve underestimated the cost, it will wreak havoc on your retirement income.  

So, how realistic is your second home retirement plan? Factor in our suggestions below.

Purchasing costs

If you plan to buy the home using a mortgage, you will of course have a monthly payment.  While the continued low interest rates may help with the home’s affordability, this payment does add to the expenses that your retirement income sources will support.  Calculate your withdrawal rate (the percentage of savings needed to be withdrawn each year) and determine if it’s sustainable over your retirement years.

Now, if you’re able to purchase the property without a mortgage, yes, you would avoid paying interest and you would have no monthly payment.  On the other hand, using a portion of your retirement savings to purchase the home could mean that you have fewer assets reserved for other retirement spending needs.  Consider the impact it may have on the sustainability of your retirement income and whether purchasing or financing the property is more advantageous.

Don’t forget about property taxes. They’re ongoing expenses that you must factor into your budget. They vary widely depending on the state and local community.  Consider any difference in tax rates; non-homestead property is taxed higher than homestead property.

Additional costs

Unfortunately, we know that the cost of owning a home doesn’t end with the purchase. This is certainly true with a second home as well.  Depending on the property type, location, and climate/environment there may be additional costs that you aren’t used to with your current home.  It’s vital that your plan supports these costs as well.  Some examples include:

• Insurance: You’ll pay annual premiums for homeowner’s insurance on two properties.  Plus, homes with higher risk (e.g. hurricane prone southern states) often require additional flood or wind damage insurance.  In some cases, this nearly doubles the cost of the new policy.

• Condo/Association Fees:  Buying a condominium or a standalone house in a community with a neighborhood association will likely mean additional monthly fees.  Homeowners associations may also impose special assessments during the time you own the property for maintenance projects, community amenities, etc.  Understanding the previous history of assessments and the need for future projects can help you better prepare for those potential costs.

• Maintenance on two properties:  Now you have two homes to maintain.  If your second property is far away or you won’t visit often, you may need to hire people locally to provide the maintenance services for you.

• Home security:  Especially for a home that is unoccupied for long periods of time, you want to protect it from vandalism, trespassing, and burglary.  That could mean investing in security systems or working with local service providers to routinely check-in on the property.   

• Heating and cooling year-round: Unlike cottages or houses up North that you can close down and winterize, vacation homes in warm climates may require you to run the air conditioning when you’re not there.  Issues like mold and mildew can be a problem when temperatures and humidity are too high, which is another reason you may need to hire local services to make sure everything is working properly.

• Insect/pest control:  Your second home may be in a region with insects or other critters that require more regular/aggressive pest control.  Add this to your list of monthly or annual maintenance expenses.

What if I plan to rent out my second home?

• Renting out your second home could be an excellent way to generate additional income to offset the costs of ownership.  However, you could face lifestyle compromises. Here are some considerations:

•  Local rules on renting:  It’s critical to understand any local government ordinances or homeowners association restrictions on using your property as a rental.  In some cases, short-term rentals are not allowed or there are limits on the total number of rentals.

• Property management:  The farther the distance between your rental and primary properties, the greater chance you’ll need to hire a property manager to provide on-site service for your vacation guests or long-term tenants.  Property managers can advertise, book renters, and manage financial transactions.  The cost to outsource these services is typically between 10-35% of the rental cost.

•  Additional insurance coverage:  Tenants may not be covered by your insurance.  Homeowners insurance often covers incidents only when the property is owner-occupied.  You may need to add a form of landlord insurance, depending on factors such as the frequency and amount of days you will have the property rented.  Review your policy to be sure.

• Extra maintenance and repair:  You may face repairs and/or need to replace furniture.  Studies suggest that the cost to maintain a vacation rental is 1.5-2% of the property value each year.

The decision to buy a second home involves a combination of both lifestyle and financial considerations. Build a sound plan by balancing your priorities.  Consult with your financial planner as you work through these important life goals, and if we can be a resource for you, please reach out to us! 

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

How To Invest Your Money In Turbulent Markets

Contributed by: Jaclyn Jackson, CAP®

Navigating daily market fluctuations through COVID-19 has been challenging. With every newsfeed from Washington or new economic data numbers, markets react. So what do we make of this as investors? Well, it truly depends on your circumstance. For individuals who have a long investment horizon and stable finances, there may be an opportunity to take advantage of market inefficiencies.

For individuals who have experienced (or anticipate) financial changes, it may be time to reevaluate your investment approach. Here are a few ideas to discuss with your advisor when considering investment strategies during the coronavirus pandemic.

Strategies for Long-Term Investors

For long-term investors, volatile markets should not discourage commitment to your investment plan. Staying invested, reestablishing your asset allocation, gradually investing, and generating tax opportunities are still valuable to progressing your investment aims. Think about the following strategies:

1. Rebalance - Rebalancing is a systematic way of adapting the commonly suggested investment advice, “buy low and sell high”. It disciplines investors to trim well-performing investments and buy investments that have the potential to gain profits. In our current environment, that looks like trimming from bond positions and investing in equities for many people. Importantly, rebalancing helps investors maintain their established asset allocation; someone’s predetermined investment allocation suited to meet their investment objectives. In other words, rebalancing helps investors maintain the risk/return profile meant to enhance their probability of meeting long-term goals.

2. Dollar-Cost Average - A gingerly alternative to rebalancing is dollar-cost averaging. Investors who use this strategy identify underexposed asset classes and invest a set amount of money into those assets at a set time (i.e. monthly) over a set period (i.e. 1 year). This method helps investors buy more shares of something when it is inexpensive and fewer shares of something when it is expensive. Buying at a premium when the market is up is stabilized by taking advantage of prices when the market is down. Therefore, the average cost paid per share of your investment is cheaper than just paying the premium prices. Having a dollar-cost averaging strategy in place now, while markets have dipped, helps you buy more shares of investments while they cost less.

3. Tax Loss Harvest - Selling all or part of a position in your taxable account when it is worth less than what you initially paid for it creates a realized capital loss. Losses can offset capital gains and other income in the year you realize it. If realized losses exceed realized gains during that year, realized losses can be carried forward (into future years). Harvesting losses could help investors replace legacy positions, diversify away from concentrated positions, or stow away losses for more profitable times.

4. Do Nothing - The key here is to stay invested. The challenge with fleeing investment markets when they are down is that it is incredibly hard to time reinvesting when they will go back up. Missing upside days may inhibit full recovery of losses. According to research developed by Calamos Investments, missing the 20 best days of the S&P 500 over 20 years (1/1/99 – 12/31/19) reduced investment returns by two-thirds. Time, not market timing, supports you in meeting your investment goals.

Strategies Amid Financial Hardships

Many people’s employment and financial situations have changed. Understandably, some have to review their ability to invest. If you are concerned about losing your job or potential health issues, it is time to revisit your savings. Could your rainy day resources cover 6-8 months of financial needs? If not, you will likely need to build up savings. For those who are experiencing financial challenges, consider the following strategies:

1. Add to emergency funds by lowering or pausing retirement account contributions. Luckily, you do not have to liquidate part of your retirement account with this strategy. Staying invested gives your portfolio a chance to benefit from long-term performance. If your employer matches retirement account contributions, continue to invest up to that amount, then add to savings with the balance of your normal participation amount. Once savings needs are met, resume full investment participation.

2. Rebalance your portfolio to provide liquidity. As noted above, rebalancing takes earnings off the table from investments that have performed well. However, instead of reallocating to other investments, use proceeds to increase your rainy day savings. This method prevents you from selling off positions that are at a loss.

Jaclyn Jackson, CAP® is a Portfolio Administrator at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

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Please note, the options noted above are not for everyone. Consult your advisor to determine which options are appropriate for you. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

What’s the Difference Between a Roth and a Traditional IRA?

Contributed by: Kali Hassinger, CFP®, CDFA®

Many are focused on filing their taxes by April 15th, but that day is also the deadline to make a 2019 IRA contribution! With only a week left, how will you decide between making a Roth or a traditional IRA contribution? There are pros and cons to each type of retirement account, but your individual situation will determine the better option. Keep in mind, the IRS has rules to dictate who can make contributions, and when.

2019 Roth IRA Contribution Rules/Limits

• For single filers, the modified adjusted gross income (MAGI) limit is phased out between $122,000 and $137,000.

• For married filing jointly, the MAGI limit is phased out between $193,000 and $203,000

• Please keep in mind that for making contributions to this type of account, it makes no difference if you are covered by a qualified retirement plan at work (401k, 403b, etc.), you simply have to be under the income thresholds.

• The maximum contribution is $6,000 for those under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

2019 Traditional IRA Contributions

• For single filers covered by a company retirement plan, the deduction is phased out between $64,000 and $74,000 of MAGI.

• For married filers covered by a company retirement plan, the deduction is phased out between $103,000 and $123,000 of MAGI.

• For married filers not covered by a company plan, but have a spouse who is, the deduction for your IRA contribution is phased out between $193,000 and $203,000 of MAGI.

• The maximum contribution is $6,000 if you’re under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

Now, you may be wondering what type makes more sense for you (if you are eligible). Well, like many financial questions…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that money grows tax deferred. So, when you are over age 59 1/2 and have held the money for 5 years, the money you take out is tax free. However, in exchange for tax free money, you don’t get an upfront tax deduction when investing the money in the Roth. You are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a traditional IRA, you get a tax deduction the year you contribute money to the IRA. For example, a married couple filing jointly has a MAGI of $190,000 putting them in a 24% marginal tax bracket.  If they made a full $6,000 traditional IRA contribution they would save $1,440 in taxes. To make that same $6,000 contribution to a Roth, they would need to earn $7,895 to pay 24% in taxes in order to then make the $6,000 contribution. The drawback of the traditional IRA is that you will be taxed on it later in life when you begin making withdrawals in retirement. Withdrawals taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Pay Now or Pay Later?

Future tax rates make it challenging to choose what account type is right for you. If you go the Roth IRA route, you will pay your tax bill now. The downside is that you could find yourself in a lower tax bracket in retirement. In that case, it would have been more lucrative to take the other route. And vice versa.

How Do I Decide?

We typically recommend Roth contributions to young professionals because their income will most likely increase over the years. However, if you need tax savings now, a traditional contribution may make more sense. A traditional IRA may be the best choice if your income is stable and you’re in a higher tax bracket.  However, you could be disqualified from making contributions based on access to other retirement plans. 

As always, before making any final decisions, it’s always a good idea to work with a qualified financial professional to help you understand what makes the most sense for you.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

Why We Grow Happier With Age

Contributed by: Sandra Adams, CFP®

Having had a “milestone” birthday at the end of last year, I came across a book recently that caught my attention. The Happiness Curve: Why Life Gets Better After 50 by Jonathan Rauch seemed like a book that I had to read – who wouldn’t want to know how and why life was going to start getting better!?!  I was completely intrigued by this book. It is backed by the personal experience of the author, actual case studies, and long-term social research.  So, what did I learn?

Research indicates that life satisfaction declines in your forties. Despite being dubbed as having a “midlife crisis”, your forties are less of a crisis and more of a sense of despair. Why could this happen?

• We realize that we’re not going to achieve everything we once imagined

• We compare ourselves to others who’ve achieved more and question our self-worth

• We lack gratitude and feel shame or embarrassment

However, by age 50 (or shortly thereafter) our “sour” mood changes and we begin to feel more life satisfaction. As each decade passes, our happiness “ranking” gets even higher.

• We become less focused on our own goals and become more focused on serving others

• We accept our life and focus on personal relationships instead of external achievements

• We stop comparing ourselves to others and focus more on our own internal satisfaction

Key takeaways:

• Be self-aware of the psychology behind your feelings

• Know that the “midlife crisis” isn’t forever and better times are ahead

• The future is an opportunity to live our happiest and most socially satisfying years

For those who are focused on the negatives of aging such as an ailing body or a failing mind, I challenge you to pick up The Happiness Curve to get a different perspective on your future retirement years. What you learn just might surprise you! If you’d like to have a conversation about this topic or additional topics around retirement or longevity planning, feel free to contact me at sandy.adams@centerfinplan.com.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.